Budget deficit to reach e20bn unless public spending curbed
Michael Brennan Political Correspondent
THE budget deficit will soar to €20bn this year unless action is taken to curb public spending.
The deepening economic recession will lead to tax revenue dropping by €4bn this year to €37bn, requiring billions more in borrowing to meet the state's spending requirements. Tax revenues dropped by €8bn last year.
The grim warning has been provided by the Government to unions and employers, who are currently engaged in discussions about how the deficit can be reduced.
Finance Minister Brian Lenihan's department is now forecasting that €20bn will need to be borrowed this year if current spending trends continue, with €11bn of this borrowed to pay for current spending and €9bn borrowed to pay for capital projects.
Unchecked
If this process continues unchecked, borrowing for current spending will increase from €11bn to €17bn by 2013.
A Government source last night said the figures were being provided to show the seriousness of the situation to the unions, who are currently resisting demands for public sector cuts.
"The social partners are being given one last chance," he said.
Mr Lenihan is aiming to get back to the original projections in his budget last October, which envisaged that €12bn would be borrowed. Otherwise, his department estimates that borrowing will continue to rise until it reaches 90pc of Gross Domestic Product (GDP) by 2013, compared to the present rate of 41pc of GDP.
Mr Lenihan is seeking to obtain immediate savings in the €20bn public sector wage bill, which accounts for almost one-third of current spending. But even a 10pc cut would only deliver €2bn in savings.
The stark figures are contained in a briefing document sent by the Department of Finance to the EU Commission to comply with its requirements under the EU's stability and growth pact. Although it forbids a country from borrowing more than 3 per cent of GDP, Ireland is set to exceed this until at least 2013.
